LML4804/MO001/2/2016
INCOME TAX LAW
(LML4804)
Semester 2
MO/001/2/2016
Department of Mercantile Law
,Compiled by:
Prof. SP van Zyl
Prof. P Letete
Mrs. Y de Beer
Miss. K Seopa
© 2016 University of South Africa
All rights reserved
Printed and published by the
University of South Africa
Muckleneuk, Pretoria
LML4804/501/2016
2
, LML4804/001
Contents
1 LEARNING UNIT 1:...................................................................................................................... 6
1.1 STATE EXPENDITURE AND THE FINANCING THEREOF ......................................................... 6
1.2 WHAT IS TAX? ............................................................................................................................. 8
1.3 WHY DO WE PAY TAXES? .......................................................................................................... 9
1.4 THE TAX BASE .......................................................................................................................... 11
1.5 AN EQUITABLE TAX SYSTEM .................................................................................................. 12
1.6 DIRECT TAXES AND INDIRECT TAXES ................................................................................... 13
1.7 PROGRESSIVE, REGRESSIVE AND PROPORTIONAL TAXATION ......................................... 14
1.8 IMPORTANT CONCEPTS IN THE SPHERE OF TAXATION ..................................................... 15
1.9 WORKING THROUGH TAX LEGISLATION ............................................................................... 17
2 LEARNING UNIT 2 ..................................................................................................................... 18
2.1 INTRODUCTION ........................................................................................................................ 18
2.2 TAXES LEVIED BY THE NATIONAL SPHERE OF GOVERNMENT .......................................... 19
2.3 TAXES LEVIED BY THE PROVINCIAL SPHERE OF GOVERNMENT ....................................... 20
2.4 TAXES LEVIED BY THE LOCAL SPHERE OF GOVERNMENT ................................................ 20
2.5 INTERGOVERNMENTAL TRANSFERS AND SUBSIDIES ......................................................... 21
2.6 TAX REFORM ............................................................................................................................ 21
2.7 SOURCES OF SOUTH AFRICAN TAX LAW .............................................................................. 22
2.8 TAX LAW AND THE BILL OF RIGHTS ....................................................................................... 23
2.9 THE INTERPRETATION OF TAX STATUTES ........................................................................... 24
2.10 COMMON LAW .......................................................................................................................... 26
2.11 ADMINISTRATION ..................................................................................................................... 27
2.12 OBJECTION AND APPEAL ........................................................................................................ 27
2.13 TAX AVOIDANCE VERSUS TAX EVASION ............................................................................... 28
2.14 INCOME TAX ............................................................................................................................. 29
3 LEARNING UNIT 3 ..................................................................................................................... 30
3.1 INTRODUCTION: GETTING FROM GROSS INCOME TO TAX PAYABLE ................................ 30
3.2 GROSS INCOME........................................................................................................................ 32
3.3 YEAR OR PERIOD OF ASSESSMENT ...................................................................................... 33
3.4 TAXPAYER: RESIDENTS AND NON-RESIDENTS .................................................................... 33
3.5 TOTAL AMOUNT, IN CASH OR OTHERWISE ........................................................................... 34
3.6 RECEIVED BY “OR” ACCRUED TO ........................................................................................... 34
3.7 OR IN FAVOUR OF (SUCH A RESIDENT OR NON-RESIDENT) .............................................. 35
3
, 3.8 NON-RESIDENTS: FROM A SOURCE WITHIN THE REPUBLIC .............................................. 37
3.9 EXCLUDING RECEIPTS OR ACCRUALS OF A CAPITAL NATURE ......................................... 38
3.10 SPECIFIC INCLUSIONS (PARAGRAPHS (A)-(N) IN THE DEFINITION OF “GROSS INCOME”)39
4 LEARNING UNIT 4 ..................................................................................................................... 42
4.1 INTRODUCTION ........................................................................................................................ 42
4.2 ABSOLUTE EXEMPTIONS ........................................................................................................ 43
4.3 PARTIAL EXEMPTIONS............................................................................................................. 43
4.4 SPECIAL KINDS OF INCOME .................................................................................................... 43
5 LEARNING UNIT 5 ..................................................................................................................... 45
5.1 INTRODUCTION ........................................................................................................................ 45
5.2 GENERAL DEDUCTION FORMULA .......................................................................................... 46
5.3 PROHIBITED DEDUCTIONS ..................................................................................................... 50
5.4 SPECIFIC DEDUCTIONS AND ALLOWANCES ......................................................................... 51
5.5 ASSESSED LOSSES ................................................................................................................. 55
5.6 TAXABLE INCOME .................................................................................................................... 55
6 LEARNING UNIT 6 ..................................................................................................................... 56
6.1 NATURAL PERSONS ................................................................................................................. 57
6.2 TAX RATES ................................................................................................................................ 57
6.3 REBATES ................................................................................................................................... 57
6.4 RECOVERY OF NORMAL TAX LIABILITY ................................................................................. 58
6.5 SPECIAL RULES RELATING TO THE TAXATION OF CERTAIN CATEGORIES OF NATURAL
PERSONS .................................................................................................................................. 59
6.6 PARTNERSHIPS ........................................................................................................................ 60
6.7 TRUSTS ..................................................................................................................................... 60
6.8 DECEASED AND INSOLVENT ESTATES ................................................................................. 61
6.9 INSOLVENT ESTATES .............................................................................................................. 61
6.10 COMPANIES .............................................................................................................................. 62
7 LEARNING UNIT 7 ..................................................................................................................... 68
7.1 INTRODUCTION ........................................................................................................................ 69
7.2 PERSONS LIABLE FOR CGT .................................................................................................... 69
7.3 THE SCHEME FOR THE DETERMINATION OF TAXABLE CAPITAL GAINS ........................... 69
7.4 THE DETERMINATION OF A CAPITAL GAIN OR LOSS ........................................................... 71
7.5 THE TREATMENT OF ASSETS ACQUIRED PRIOR TO 1 OCTOBER 2001 ............................. 78
7.6 IS THE CAPITAL GAIN OR LOSS EXCLUDED, LIMITED OR DEFERRED? ............................. 78
7.7 THE DETERMINATION OF A PERSON'S AGGREGATE CAPITAL GAIN OR LOSS ................. 79
7.8 THE DETERMINATION OF A NET CAPITAL GAIN OR AN ASSESSED CAPITAL LOSS ......... 80
7.9 DETERMINATION OF A TAXABLE CAPITAL GAIN ................................................................... 81
4
INCOME TAX LAW
(LML4804)
Semester 2
MO/001/2/2016
Department of Mercantile Law
,Compiled by:
Prof. SP van Zyl
Prof. P Letete
Mrs. Y de Beer
Miss. K Seopa
© 2016 University of South Africa
All rights reserved
Printed and published by the
University of South Africa
Muckleneuk, Pretoria
LML4804/501/2016
2
, LML4804/001
Contents
1 LEARNING UNIT 1:...................................................................................................................... 6
1.1 STATE EXPENDITURE AND THE FINANCING THEREOF ......................................................... 6
1.2 WHAT IS TAX? ............................................................................................................................. 8
1.3 WHY DO WE PAY TAXES? .......................................................................................................... 9
1.4 THE TAX BASE .......................................................................................................................... 11
1.5 AN EQUITABLE TAX SYSTEM .................................................................................................. 12
1.6 DIRECT TAXES AND INDIRECT TAXES ................................................................................... 13
1.7 PROGRESSIVE, REGRESSIVE AND PROPORTIONAL TAXATION ......................................... 14
1.8 IMPORTANT CONCEPTS IN THE SPHERE OF TAXATION ..................................................... 15
1.9 WORKING THROUGH TAX LEGISLATION ............................................................................... 17
2 LEARNING UNIT 2 ..................................................................................................................... 18
2.1 INTRODUCTION ........................................................................................................................ 18
2.2 TAXES LEVIED BY THE NATIONAL SPHERE OF GOVERNMENT .......................................... 19
2.3 TAXES LEVIED BY THE PROVINCIAL SPHERE OF GOVERNMENT ....................................... 20
2.4 TAXES LEVIED BY THE LOCAL SPHERE OF GOVERNMENT ................................................ 20
2.5 INTERGOVERNMENTAL TRANSFERS AND SUBSIDIES ......................................................... 21
2.6 TAX REFORM ............................................................................................................................ 21
2.7 SOURCES OF SOUTH AFRICAN TAX LAW .............................................................................. 22
2.8 TAX LAW AND THE BILL OF RIGHTS ....................................................................................... 23
2.9 THE INTERPRETATION OF TAX STATUTES ........................................................................... 24
2.10 COMMON LAW .......................................................................................................................... 26
2.11 ADMINISTRATION ..................................................................................................................... 27
2.12 OBJECTION AND APPEAL ........................................................................................................ 27
2.13 TAX AVOIDANCE VERSUS TAX EVASION ............................................................................... 28
2.14 INCOME TAX ............................................................................................................................. 29
3 LEARNING UNIT 3 ..................................................................................................................... 30
3.1 INTRODUCTION: GETTING FROM GROSS INCOME TO TAX PAYABLE ................................ 30
3.2 GROSS INCOME........................................................................................................................ 32
3.3 YEAR OR PERIOD OF ASSESSMENT ...................................................................................... 33
3.4 TAXPAYER: RESIDENTS AND NON-RESIDENTS .................................................................... 33
3.5 TOTAL AMOUNT, IN CASH OR OTHERWISE ........................................................................... 34
3.6 RECEIVED BY “OR” ACCRUED TO ........................................................................................... 34
3.7 OR IN FAVOUR OF (SUCH A RESIDENT OR NON-RESIDENT) .............................................. 35
3
, 3.8 NON-RESIDENTS: FROM A SOURCE WITHIN THE REPUBLIC .............................................. 37
3.9 EXCLUDING RECEIPTS OR ACCRUALS OF A CAPITAL NATURE ......................................... 38
3.10 SPECIFIC INCLUSIONS (PARAGRAPHS (A)-(N) IN THE DEFINITION OF “GROSS INCOME”)39
4 LEARNING UNIT 4 ..................................................................................................................... 42
4.1 INTRODUCTION ........................................................................................................................ 42
4.2 ABSOLUTE EXEMPTIONS ........................................................................................................ 43
4.3 PARTIAL EXEMPTIONS............................................................................................................. 43
4.4 SPECIAL KINDS OF INCOME .................................................................................................... 43
5 LEARNING UNIT 5 ..................................................................................................................... 45
5.1 INTRODUCTION ........................................................................................................................ 45
5.2 GENERAL DEDUCTION FORMULA .......................................................................................... 46
5.3 PROHIBITED DEDUCTIONS ..................................................................................................... 50
5.4 SPECIFIC DEDUCTIONS AND ALLOWANCES ......................................................................... 51
5.5 ASSESSED LOSSES ................................................................................................................. 55
5.6 TAXABLE INCOME .................................................................................................................... 55
6 LEARNING UNIT 6 ..................................................................................................................... 56
6.1 NATURAL PERSONS ................................................................................................................. 57
6.2 TAX RATES ................................................................................................................................ 57
6.3 REBATES ................................................................................................................................... 57
6.4 RECOVERY OF NORMAL TAX LIABILITY ................................................................................. 58
6.5 SPECIAL RULES RELATING TO THE TAXATION OF CERTAIN CATEGORIES OF NATURAL
PERSONS .................................................................................................................................. 59
6.6 PARTNERSHIPS ........................................................................................................................ 60
6.7 TRUSTS ..................................................................................................................................... 60
6.8 DECEASED AND INSOLVENT ESTATES ................................................................................. 61
6.9 INSOLVENT ESTATES .............................................................................................................. 61
6.10 COMPANIES .............................................................................................................................. 62
7 LEARNING UNIT 7 ..................................................................................................................... 68
7.1 INTRODUCTION ........................................................................................................................ 69
7.2 PERSONS LIABLE FOR CGT .................................................................................................... 69
7.3 THE SCHEME FOR THE DETERMINATION OF TAXABLE CAPITAL GAINS ........................... 69
7.4 THE DETERMINATION OF A CAPITAL GAIN OR LOSS ........................................................... 71
7.5 THE TREATMENT OF ASSETS ACQUIRED PRIOR TO 1 OCTOBER 2001 ............................. 78
7.6 IS THE CAPITAL GAIN OR LOSS EXCLUDED, LIMITED OR DEFERRED? ............................. 78
7.7 THE DETERMINATION OF A PERSON'S AGGREGATE CAPITAL GAIN OR LOSS ................. 79
7.8 THE DETERMINATION OF A NET CAPITAL GAIN OR AN ASSESSED CAPITAL LOSS ......... 80
7.9 DETERMINATION OF A TAXABLE CAPITAL GAIN ................................................................... 81
4
